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Banks assess loan exposure as Qatar crisis deepens

Fri, Sep 29, 2017 - 10:58 PM

[LONDON] Qatari banks and financial institutions in neighbouring countries that have severed diplomatic and transport ties are assessing their exposure to each other and seeking to sell loans in the secondary market as the crisis threatens to deepen.

Qatar's economy has been under pressure since June 5 when Saudi Arabia, the UAE, Bahrain and Egypt imposed travel and trade restrictions and accused Qatar of backing terrorism, a charge that Doha denies.

Banks on both sides are concerned that the situation is deteriorating and could further affect regional and global business. Lenders are reviewing existing exposure while writing new loans remains on hold.

Qatari banks have been selling non-strategic loans for several months, mainly in countries that have sanctioned them, and banks in the UAE, Saudi Arabia, Bahrain and Egypt are now starting to look at their Qatar exposure, loan bankers said.

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"There is starting to be a two-way effect, it's taken this long to develop. A lot of institutions have cross-border exposure and all regions are thinking about how to balance it," a senior Qatar-based banker said.

Economic sanctions have not yet been imposed and banks are still able to buy loans from each other, but some are opting to use third-party counterparties due to sensitivities. Other solutions, including asset swaps, are also being considered.

The imposition of economic sanctions could accelerate loan sales and even prompt mandatory repayment if illegality clauses in loan documents are triggered, which could put Qatari banks' liquidity under further pressure, bankers said.

Qatar has injected about US$38.5bn of its US$340bn reserves into its economy to cushion the impact of its neighbours' embargo, according to a Moody's report.

Qatar's sovereign wealth fund, Qatar Investment Authority, has deposited billions of dollars in local banks to prevent them from suffering funding squeezes after banks from the states imposing sanctions pulled out deposits and loans from Qatar.

Official data show Qatar deposited US$10.9bn in its banks during June, and commercial bankers believe it has probably deposited more money since then, Reuters reported last month.

Qatari banks have been quietly offering portfolios of performing loans to Middle East bank buyers and loan traders in London in recent months as business has slowed and their liquidity is squeezed, but they are looking for high prices. "Qatari banks are selling assets. All have had liquidity issues - loans are being sold and bond positions too," a senior banker said.

Moody's changed the outlook on Qatar's banking system to negative from stable in August due to weakening operating conditions and continued funding pressures facing Qatari banks.

Commercial Bank of Qatar, the country's third-largest bank, is in talks to sell its minority stake in Abu Dhabi-listed United Arab Bank , and a unit of Doha Bank , Qatar's fifth-largest lender, is seeking to sell some of its assets in the United Arab Emirates to local lenders , Reuters reported.

"We're adapting to the situation and seeing what is the best way to position the bank," the senior Qatar-based banker said."We don't know what will occur in the new normal and are positioning our balance sheet accordingly." Banks in the UAE, Saudi, Bahrain and Egypt have also started to review their Qatari exposure in recent weeks, loan bankers said. They are not currently under pressure to sell existing exposure, but are not writing any new business.

"The bigger banks in the UAE and Saudi are looking at reducing their Qatari exposure and are in the process of looking at what they want to do with it," the senior loan banker said.